You’ve spent years building your business. Late nights, personal risk, deferred income, and more stress than you’d ever admit publicly. Your company is more than an asset. It’s your identity, your livelihood, and in many cases, other people’s livelihoods too.
Now you’re getting married. And without a prenup, your business is at risk.
How Ontario Law Treats Businesses in a Divorce
Under Ontario’s Family Law Act, the increase in value of a business during the marriage is included in the equalization of net family property. This means your spouse may be entitled to a share of the business growth that occurred between your wedding date and the date of separation.
Let’s say you started a company five years before you got married, and it was worth $200,000 at the time of the wedding. Ten years later, when the marriage ends, the business is worth $2 million. The $1.8 million in growth during the marriage is included in the equalization calculation. Your spouse could be entitled to a significant portion of that value, potentially forcing a sale, a buyout, or a restructuring of the company.
For entrepreneurs with business partners, this creates additional complications. Your co-founders or investors likely don’t want your ex-spouse becoming a stakeholder in the company. Many shareholders’ agreements actually require partners to have prenups specifically to prevent this scenario.
What a Prenup Can Protect
A well-drafted marriage contract can address virtually every business-related concern. It can classify the business as separate property, excluding its value from equalization entirely. It can specify a valuation method to be used in the event of separation, preventing costly valuation disputes. It can protect intellectual property, client relationships, and brand equity. It can define how business income earned during the marriage is treated. And it can shield business partners and investors from the consequences of one partner’s divorce.
The specifics depend on the nature of the business. A sole proprietorship is treated differently from an incorporated company with multiple shareholders. A franchise has different considerations than a tech startup. The key is working with a platform or lawyer who understands how business assets interact with family law.
The Shareholders’ Agreement Connection
If you have business partners, check your shareholders’ agreement. Many shareholders’ agreements contain provisions requiring partners to maintain valid prenuptial agreements. The logic is straightforward: if one partner’s divorce results in their spouse acquiring shares in the company, it disrupts the entire partnership. A prenup prevents this scenario.
If your shareholders’ agreement doesn’t address prenups, it probably should. Raise it with your partners and your corporate lawyer. It’s a conversation that protects everyone at the table.
Businesses Started During the Marriage
The picture is slightly different if you start a business after getting married. In that case, the business was created entirely during the marriage, and its full value (not just the growth) may be subject to equalization.
Even in this scenario, a prenup (or a postnuptial agreement created when the business launches) can specify how the business will be valued, how the non-owning partner’s contribution is recognized, and what happens to the company in a separation. The earlier you address these questions, the less likely they are to become contentious later.
Valuation: The Biggest Battleground
Business valuation is one of the most expensive and contentious aspects of divorce for entrepreneurs. The value of a business can vary dramatically depending on the methodology used: asset-based, earnings-based, or market-comparable. Different experts produce different numbers, and litigation over valuation can cost tens of thousands of dollars.
A prenup can resolve this in advance by specifying which valuation method will be used, who will perform the valuation, and at what date the value will be assessed. This eliminates one of the most expensive aspects of an entrepreneurial divorce before it even begins.
Protect the business you built. Start your marriage contract at I Do Prenup.
Frequently Asked Questions
Q: Can my spouse take half my business in a divorce?
Not exactly, but the growth in value of the business during the marriage is subject to equalization in Ontario. Without a prenup, your spouse could be entitled to a significant share of that growth.
Q: Do I need a prenup if I have a shareholders’ agreement?
They serve different purposes. A shareholders’ agreement governs relationships between business partners. A prenup governs the relationship between spouses. Many shareholders’ agreements actually require partners to have prenups.
Q: What if I start a business after getting married?
You can create a postnuptial agreement at any time to address a business started during the marriage. The earlier you do it, the cleaner the protection.